Jets Company buys Pack Company for $11 million.Pack Company has assets with a fair value of $9 million and liabilities with a fair value of $2 million.Pack's stockholders' equity is recorded at $6 million.What goodwill should Jets Company record?

Question

Quizplus · Accepted Answer

Goodwill is calculated as the difference between the cost of acquisition and the fair value of identifiable assets and liabilities. In this case, Jets Company paid $11 million for Pack Company, and Pack Company's identifiable net assets have a fair value of ($9 million - $2 million) = $7 million. Therefore, the amount of goodwill that Jets Company should record is $11 million - $7 million = $4 million.

Jets Company Buys Pack Company for $11 Million